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Ricardo Versus Thornton on the Appropriate Monetary Response to Supply Shocks

By Thomas M. Humphrey

Economic Review

Nov/Dec, 1990

David Ricardo (1772-1823) recommended countering supply shocks with monetary contraction. Henry Thornton (1760-1815) advised a constant-money response. Their views hinged (1) on the neutrality or non-neutrality of money-stock changes on real output and employment and (2) on the costs of inflation. These same considerations influence Federal Reserve policy in response to oil shocks today.

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